Zara owner Inditex unveils record-busting earnings

Zara owner Inditex has revealed record earnings as shoppers flocked back to the stores despite the rising cost of living.

The world’s largest fashion group, which also owns the Pull & Bear and Bershka brands, reported profit growth of a fifth to £7.6 billion last year, following a recovery in retail sales and efforts to reduce costs.

Turnover rose 17.5 per cent to £28.8 billion this year, while in-store sales were up 23 per cent.

Inditex told shareholders that online traffic and retail sales have grown “significantly” in the recent period, a trend that has continued in recent months.

Retail and online sales rose 13.5 percent year-on-year between Feb. 1 and March 13, as the spring and summer collections were “well received” by shoppers, the group said.

The group dividend is increased by 29 percent to EUR 1.20 per share.

Inditex CEO Oscar Garcia Maceiras: “The outstanding results of 2022 demonstrate the strength of our business model and the ability to move to the next level of development where our fashion proposition, the experience of our customers, our commitment to sustainability and the talent of our teams continue being central.’

Maceiras, who took up the top job at Inditex at the end of 2021, said it had been a year of “great intensity” since Inditex founder Amancio Ortega handed over the chairmanship to his daughter Marta Ortega.

Higher-than-expected capital expenditures helped the company’s shares fall about 5 percent earlier in the day amid choppy markets worldwide.

In May last year, Zara started charging £1.95 to customers who wish to return items to third-party drop-off points, which is deducted from the refund amount

Jefferies analyst James Grzinic said, “The new year has started remarkably strong in terms of revenue.

“And investments in logistics capacity, in-store tech automation and store expansion look set to support strong growth going forward.”

Victoria Scholar, head of investment at Interactive Investor, said: ‘Zara has an exceptional ability to bring the latest fashion trends to the mass market.

“This affordable luxury segment has proven impressively resilient against the backdrop of slowing growth, cost-of-living crises in many of Inditex’s key markets, declining consumer confidence and declining real wages.

While equities struggled in the first quarter of 2022 with the outbreak of war in Ukraine and inflationary pressures, equities are recovering from April lows.

Equities are returning some gains today, overtaken by broader risk-off sentiment after rising more than 10% year-to-date. Given that Inditex is generally one of the most favored stocks in the industry, investors may have been disappointed that the results were in line rather than beating analysts’ current expectations.”

H&M reveals smaller sales increase than expected

H&M, the world’s second-largest fashion retailer, revealed a smaller-than-expected increase in sales on Wednesday, in the latest sign it is struggling to compete with Inditex.

Shares of H&M fell 6 percent in afternoon trading, underperforming the broader Swedish market, according to Reuters data.

The Swedish group said sales measured in local currency for the period, the fiscal first quarter, were up 3 percent from a year earlier.

Sales: H&M today revealed a smaller-than-expected increase in sales

Jefferies said sales in local currency, the numbers most closely watched by markets, were significantly lower than consensus estimates and implied sales actually fell 3 percent last month.

The broker called the results “worse than feared” and said it expected a loss of pre-interest and tax earnings when the group reports its full first-quarter results on March 31.

H&M, which is working on a plan to reduce staff and other costs, saw net sales grow by 12 percent compared to a year earlier.

But H&M’s profits fell last year as it was unable to fully pass on rising raw material, freight and energy costs in an effort to retain its price-sensitive customers.

Royal Bank of Canada expects procurement costs to continue to rise for the retailer in the first quarter and to remain under pressure in the second quarter.

It predicted possible improvements at the end of the second and beginning of the third quarter, citing low prices to appeal to H&M’s key customer base, improvements in women’s clothing and a new creative director.